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Late trading of mutual fund shares occurs when investors placing trades after 4 PM receive the 4 PM price. These late traders can use the information revealed after 4 PM to guide their trades: buying funds when their current value is greater than their 4 PM value and selling the funds when the reverse is true. Doing so allows them to earn expected abnormal returns at the expense of the fund's long-term shareholders.
A practice in which a hedge fund buys or sells shares in a mutual fund after the end of a trading day, but asks the fund to record the transactions at the end of the trading day. Because the net asset value (NAV) of a mutual fund is determined at the end of each trading day, transactions that occur after the end of the trading day may distort the fund's true NAV. This allows a hedge fund to close their positions the next trading day at a profit. Late-day trading is considered unethical, but it is not illegal.